Wilbert's, Inc. paid $90,000, in cash, for a piece of equipment three years ago. Last year, the company spent $10,000 to update the equipment with the latest technology. The company no longer uses this equipment in their current operations and has received an offer of $50,000 from a firm who would like to purchase it. Wilbert's is debating whether to sell the equipment or to expand their operations such that the equipment can be used. When evaluating the expansion option, what value, if any, should Wilbert's assign to this equipment as an initial cost of the project?

Question

Quizplus · Accepted Answer

The value to assign to the equipment for evaluating the expansion option is its current market value or opportunity cost, which is $50,000, the amount they could receive if they sold it now.